BRASIL

FITCH. 19 MAY 2017. Brazil. Fitch Affirms Brazil at 'BB'; Outlook Negative

Fitch Ratings-New York-19 May 2017: Fitch Ratings has affirmed Brazil's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB'. The Rating Outlook is Negative. The issue ratings on Brazil's senior unsecured Foreign and Local Currency bonds are also affirmed at 'BB'. The Country Ceiling is affirmed at 'BB+' and the Short-Term Foreign Currency and Local Currency IDRs at 'B'.

KEY RATING DRIVERS 

Brazil's ratings are constrained by the structural weaknesses in its public finances, high and rising government debt burden, weak growth prospects, weaker governance indicators compared with peers, and repeated episodes of political instability that undermine policy-making and have negative implications for the economy. These weaknesses are counter-balanced by its economic diversity and entrenched civil institutions, with its per capita income higher than the 'BB' median. The country's capacity to absorb shocks is bolstered by its flexible exchange rate, robust international reserves position, a strong net sovereign external creditor position, and deep and developed domestic government debt markets. 

In addition, the rating affirmation is supported by the recently improved economic policy environment, the ongoing external adjustment, declining inflation and better anchoring of inflation expectations and the passage of some reforms (e.g. the spending cap) that should facilitate fiscal consolidation. 

The Negative Outlook reflects continued uncertainties around the outlook for Brazil's economic recovery, the prospects for medium-term public debt stabilization given large fiscal imbalances, and the progress on the legislative agenda, specifically pertaining to the social security reform. Despite the spending cap that limits federal spending growth, a weak economic recovery may dampen revenue performance and pose risks to medium-term fiscal consolidation while the pending passage of a social security reform is a key element in making the spending cap viable and credible and supporting broader confidence in public debt sustainability. However, recent political events related to President Temer have increased uncertainty regarding the reform process and could hurt broader confidence and economic recovery prospects. 

Brazil's economic recovery prospects remain challenging after two years of recession, with Fitch forecasting growth of 0.5% in 2017 and 2.5% in 2018, although downside risks remain. A high and increasing unemployment rate, corporate and household de-leveraging, and lingering fiscal and political uncertainties have weighed on economic recovery. Growth could strengthen in 2018 from the impact of substantial ongoing monetary easing and some improvement in external conditions. The government is also working on measures to improve the difficult business climate, although the impact of these will likely take time to materialize. Increased international and domestic financial volatility, a setback in the domestic reform agenda that hurts confidence and a more muted impact of monetary easing on domestic demand continue to represent downside risks for the growth outlook. 

Brazil's fiscal deficits are expected to remain large and decline gradually during the forecast period. Fitch forecasts the general government deficit to average close to 8% of GDP during 2017-2018, down from close to 9% of GDP in 2016. Brazil's general government debt burden reached 69.9% of GDP in 2016 compared with around 50% of GDP for the 'BB' median and Fitch expects it to continue climbing during the forecast period to nearly 80% of GDP by 2018. 

Brazil met its public sector primary deficit target in 2016 and has announced spending adjustments and withdrawal of selective tax breaks to meet the 2017 primary deficit target of 2.1% of GDP. Fitch currently expects the government to meet its target for 2017, although downside risks persist. In light of the shallow economic recovery and revenue under-performance, the government has relaxed its medium-term fiscal consolidation goals, with a primary surplus expected only in 2020. A subdued growth outlook and the forthcoming 2018 election cycle mean that measures to accelerate consolidation are unlikely and there is risk of continued fiscal under-performance. 

Certain states are also confronting financial distress. The government is planning to address this issue by offering such states debt service relief on their loans from the central government in exchange for implementing austerity measures. 

Brazil is engaged in a reform process, which if implemented, would help contain medium-term public sector expenditure growth. The government was successful in passing the spending cap (whereby federal primary spending will grow by the previous year's inflation). Despite some dilution, a social security reform that results in medium-to-long term savings compared to the current no-reform scenario is in the midst of the approval process in congress. A social security reform would ease growth in pension spending and improve the prospects for meeting the spending cap in the medium term. 

The political environment remains challenging although the policy and reform inertia have eased over the past few months. The passage of some reforms attests to the stronger coalition base of the Temer administration. However, broader governability and the reform process remain vulnerable to the fallout from the widening scope of the Lava Jato investigations, which is now involving leading politicians. Brazil's 2018 presidential and congressional elections could also introduce uncertainty. 

On the positive side, some of Brazil's macroeconomic imbalances are progressively declining. The IPCA inflation rate is expected to fall slightly below the target of 4.5% in 2017, after exceeding the target for several years. Moreover, inflation expectations for 2018 are better anchored around the target, reflecting gains in the central bank's credibility. The faster-than-expected decline in inflation and inflation expectations has facilitated the frontloading and acceleration of the monetary easing cycle. 

On the external front, the current account deficit fell to 1.3% of GDP in 2016 from an average of 3.8% during 2014-2015 reflecting the deep recession and the BRL depreciation. Fitch projects the current account deficit to widen somewhat but remain relatively moderate, averaging 1.8% during 2017-2018. More importantly, foreign direct investment has remained resilient and continues to amply finance the current account deficit. Moreover, Brazil's international reserves remain robust and the central bank has reduced the stock of FX swaps significantly over the past year. 

SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO)

Fitch's proprietary SRM assigns Brazil a score equivalent to a rating of 'BBB-' on the Long-Term FC IDR scale. 

Fitch's sovereign rating committee adjusted the output from the SRM to arrive at the final Long-Term FC IDR by applying its QO, relative to rated peers, as follows:

• Public Finance: -1 notch, to reflect Brazil's rapidly worsened general government debt burden which is projected to continue rising during the forecast period. Moreover, fiscal flexibility is hampered by the highly rigid spending profile and a heavy tax burden that makes adjustment to shocks difficult. 
• Structural Features:-1 notch, to reflect Brazil's challenging political environment and corruption-related issues that have made it difficult for the country to make timely policy adjustments. In addition, the Ease of Doing Business indicators are weaker than the 'BB' median, reflecting structural constraints to growth. 

Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three year centred averages, including one year of forecasts, to produce a score equivalent to a Long-Term FC IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.

RATING SENSITIVITIES

The main factors that, individually or collectively, could lead to a downgrade are:

• Failure to arrest the pace of increase in the government debt burden. Crystallization of contingent liabilities would be negative. 
• Re-emergence of political volatility that detracts from effective policy making and progress on economic reforms needed to improve the outlook for public finances and growth. 
• Erosion of international reserves and deterioration in government debt composition.

The Rating Outlook is Negative. Consequently, Fitch's sensitivity analysis does not currently anticipate developments with a high likelihood of leading to a positive rating change. Future developments that could individually, or collectively, result in a stabilization of the Outlook include:

• Improvement in policy implementation and reform progress that supports confidence, investment and growth prospects.
• Fiscal consolidation that leads to greater confidence in the capacity of the government to achieve debt stabilization in the medium term.
• Maintenance of improved macroeconomic stability. 

KEY ASSUMPTIONS

• Fitch assumes that China (an important trading partner for Brazil) will be able to manage a gradual slowdown and is forecasted to grow at 6.3% in 2017 and 5.7% in 2018. Argentina's economic performance (key destination of manufacturing exports) is forecasted to improve over the forecast period, with growth averaging nearly 3% during 2017-2018. 
• Fitch assumes that Brazil maintains international and domestic market access even if there is return of higher international financial volatility and further domestic confidence shocks. 

FITCH. PORTAL G1. 19/05/2017. Fitch mantém Brasil abaixo do grau de investimento e reafirma perspectiva negativa. Agência cita crescimento fraco e 'repetidos episódios de instabilidade política'.
Por Darlan Alvarenga, G1

A agência de classificação de risco Fitch anunciou nesta sexta-feira (19) que decidiu manter a nota de crédito soberano do Brasil em "BB" - dois degraus abaixo do grau de investimento (selo de bom pagador). Ao mesmo tempo, reafirmou a perspectiva negativa para o rating do país.
Ao manter inalterada o rating do Brasil, a agência destacou o crescimento fraco da economia e "repetidos episódios de instabilidade política" como riscos.
"O rating do Brasil é contido pela fraqueza estrutural em suas finanças públicas, peso crescente da dívida do governo, perspectivas fracas de crescimento, indicadores mais fracos de governança em relação a outros, e repetidos episódios de instabilidade política que afetam a política e têm implicações negativas para a economia", apontou a Fitch em nota.
Por outro lado, a agência destaca que as fraquezas são compensadas pela diversidade econômica do país e instituições consolidadas, citando ainda como motivo para não alterar a nota do Brasil a queda da inflação e reformas como a do teto dos gastos.
Governo diz ter compromisso com consolidação fiscal
Em nota, o Ministério da Fazenda disse estar compromissado com a busca da consolidação fiscal do país e a sustentabilidade da dívida pública. "A avaliação da agência reforça a importância das iniciativas que visam à recuperação da economia brasileira e à construção das bases para o crescimento sustentado", disse a Fazenda, destacando que a decisão da agência faz menção ""à importância e ao desafio da aprovação das reformas em curso, as quais ajudarão na reversão do cenário fiscal, contribuindo para uma trajetória benigna de endividamento público".



Incertezas
"A perspectiva negativa reflete incertezas continuadas em torno das perspectivas de recuperação econômica do Brasil, de estabilização da dívida pública e aos avanços na agenda legislativa, em especial a reforma da Previdência", acrescentou.
A Fitch prevê crescimento de 0,5% PIB do Brasil em 2017 e de 2,5% em 2018.
"Entretanto, recentes eventos políticos relacionados ao presidente Temer elevaram a incerteza em relação ao processo de reformas e podem afetar a confiança e as perspectivas de recuperação econômica", completou a agência.
O Supremo Tribunal Federal (STF) autorizou abertura de investigação contra Temer depois que Joesley Batista, dono da JBS, gravou um diálogo com o presidente. Segundo o jornal "O Globo", Joesley informou aos investigadores que, nessa conversa, ele e Temer discutiram a compra do silêncio do deputado cassado Eduardo Cunha (PMDB-RJ), preso na Lava Jato, com o objetivo de evitar que ele fizesse delação.
Fitch segue S&P
A nota do Brasil e a perspectiva seguem a mesma na classificação da agência desde maio de 2016.
A Fitch repete movimento também feito pela agência Standard and Poor's (S&P), que em fevereiro também decidiu manter inalterada a nota do Brasil e a perspectiva negativa, citando incertezas políticas e fraqueza da economia.
Entenda o que é grau de investimento
Perda do grau de investimento
Atualmente, a nota do Brasil está na mesma posição nas escalas das 3 principais agências de classificação de risco: dois degraus abaixo do grau de investimento, considerado uma espécie de selo de país bom pagador.
Na Moody´s, perspectiva foi elevada de negativa para estável em março. Em comunicado nesta sexta, entretanto, a agência afirmou que "as alegações envolvendo o presidente Michel Temer prejudicam a perspectiva de crédito do Brasil ameaçando paralisar ou reverter o positivo momento político e econômico observado recentemente".
O Brasil conquistou o grau de investimento pelas agências internacionais Fitch Ratings e Standard & Poor’s pela primeira vez em 2008. Em 2009, conseguiu a classificação pela Moody’s.
A S&P foi primeira a tirar o selo de bom pagador do Brasil, em setembro de 2015, ação que foi seguida pelas outras duas grandes agências internacionais: Fitch e Moody´s.
Segundo analistas de mercado, historicamente, países costumam levar cerca de 5 a 10 anos para recuperar o selo de país bom pagador.

FITCH. REUTERS. 19/05/2017. Fitch reafirma rating do Brasil mas cita instabilidade política como risco

(Reuters) - A agência de classificação de risco Fitch reafirmou nesta sexta-feira o rating do Brasil em "BB" com perspectiva negativa, citando os repetidos episódios de instabilidade política que têm implicações para a economia.

"O rating do Brasil é contido pela fraqueza estrutural em suas finanças públicas, peso crescente da dívida do governo, perspectivas fracas de crescimento, indicadores mais fracos de governança em relação a outros, e repetidos episódios de instabilidade política que afetam a política e têm implicações negativas para a economia", apontou a Fitch em nota.

Por outro lado, a Fitch destaca que essas fraquezas são compensadas pela diversidade econômica do país e instituições civis consolidadas, citando ainda como motivo para reafirmar o rating a queda da inflação e as reformas que devem facilitar a consolidação fiscal, como a do teto dos gastos.

A Fitch prevê crescimento de 0,5 por cento do Brasil em 2017 e de 2,5 por cento em 2018.

"Entretanto, recentes eventos políticos relacionados ao presidente Temer elevaram a incerteza em relação ao processo de reformas e podem afetar a confiança e as perspectivas de recuperação econômica", completou a nota.

O Supremo Tribunal Federal (STF) autorizou abertura de inquérito contra o presidente Michel Temer em consequência da denúncia de que Temer teria dado aval ao empresário Joesley Batista para manter pagamentos ao ex-deputado Eduardo Cunha em troca de silêncio sobre denúncias contra o governo.

MOODY'S. PORTAL G1. 19/05/2017. Crise política pode interromper reformas, diz Moody´s
Em março, agência elevou perspectiva do rating do Brasil de negativa para estável.
Por G1

A agência de classificação de risco Fitch afirmou nesta sexta-feira (19) que a crise política aberta com a delação de Joesley Batista envolvendo o presidente Michel Temer prejudica a perspectiva de crédito do Brasil e pode interromper as reformas, o que é negativo para a nota do país.
"As alegações envolvendo o presidente Michel Temer prejudicam a perspectiva de crédito do Brasil ameaçando paralisar ou reverter o positivo momento político e econômico observado recentemente. Elas também desviam o foco dos esforços para a promoção das reformas fiscais. Estas reformas, que são críticas para a melhora da força fiscal do país, provavelmente serão interrompidas", destaca a Fitch.
Em março, agência elevou perspectiva do rating do Brasil de negativa para estável. Nas outras duas grandes agências, Moody´s e Standard and Poor's (S&P), a perspectiva do rating do país segue negativa.
No comunicado desta sexta, a Moody´s pondera entretanto que "ainda é muito cedo para avaliar os desdobramentos das revelações" e ressalta que o que pode ameaçar a perspectiva estável do rating do Brasil são os mesmos fatores destacados na avaliação anunciada em março pela agência, como “um ressurgimento da desarticulação política" e "especialmente atrasos na aprovação da reforma da Previdência".

MOODY'S. REUTERS. 19/05/2017. Moody's diz que alegações sobre Temer podem paralisar reformas e pressionar rating

SÃO PAULO (Reuters) - A agência de classificação de risco Moody's Investors Service afirmou que as alegações envolvendo o presidente Michel Temer podem colocar pressão negativa sobre o rating do Brasil se reformas importantes paralisarem.

"Uma dinâmica de atraso de reformas que ameaçaria a implementação de reformas fiscais colocaria pressão negativa sobre o rating", disse a agência em comunicado.

(Reportagem de Tatiana Bautzer)

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IMF. May 19, 2017. IMF COUNTRY FOCUS. Latin America and the Caribbean: Bouncing Back from Recession

Latin America and the Caribbean is expected to gradually emerge from recession in 2017, but to secure strong and inclusive growth going forward the region needs to address gaps in infrastructure, improve education outcomes, strengthen the business environment, and tackle corruption, the IMF said in its latest Regional Economic Outlook for the Western Hemisphere.

Economic growth in Latin America and the Caribbean in 2016 was the third-lowest in 30 years—contracting by 1 percent after stagnating in 2015. Growth was held back by weak domestic demand from lower commodity prices, ongoing fiscal and external adjustment in some countries, and other country-specific domestic factors.

The IMF forecasts growth to expand by 1.1 percent this year and 2 percent in 2018. Over the medium term, growth is expected to remain subdued at 2.6 percent.

According to the report, this outlook is shaped by key shifts in the global economic and policy landscape, including a modest rebound in commodity prices and partner country demand, and higher global policy uncertainty. Domestic developments will continue to play a significant role in determining growth in many economies.

“With heightened policy uncertainty at the global level but low market volatility, countries in our region should focus on insuring against downside risks, while targeting strong, sustainable, and inclusive growth,” Alejandro Werner, Director of the IMF’s Western Hemisphere Department, told a press conference in São Paulo, Brazil.

External and domestic forces

In this challenging external environment, the report pointed out that many countries in the region should advance fiscal and external adjustments to preserve or rebuild policy buffers (for example, by improving primary balances to stabilize rising public debt).

Charting a course toward higher, sustainable, and more equitable growth will also require domestic reforms. These vary by country, and include closing infrastructure gaps; improving the business environment, governance, and education outcomes; deepening regional trade integration; and encouraging female labor force participation to boost medium-term growth and foster income convergence. These policies would help raise future growth by increasing contributions from labor, capital, and productivity.

Regional roundup

Growth prospects in South America are shaped by a combination of key domestic developments and shifts in the global landscape.

In Argentina, the recovery is under way. Growth is expected to grow 2¼ percent in 2017, driven by a rebound of private consumption, stronger public capital spending, and a pickup in exports.

In Brazil, after two years of recession, growth is expected to return to positive territory—estimated at 0.2 percent in 2017—thanks to a bumper soybean crop, one-time boost to consumption, a faster-than-expected decline in inflation, and higher iron ore prices.

In Venezuela, the economy is expected to remain in a deep recession and on a path to hyperinflation. Because there is no sign of a shift in economic policies, real GDP is expected to fall by 7.4 percent in 2017.

For other commodity exporters, the modest recovery in commodity prices will provide some relief. Despite slightly better external conditions, the outlook for Chile remains subdued, reflecting lingering domestic weaknesses. As a result, growth in 2017 is projected at 1.7 percent.

In Colombia, the orderly economic slowdown continued last year as domestic demand has been adjusting to a permanent shock to national income. While one-off factors led to a weaker-than anticipated growth in 2016, a mild rebound is expected in 2017.

Peru ’s economy grew at a rapid pace in 2016. But investment continues to lag and domestic headwinds related to a political bribery probe in connection with the Brazilian company Odebrecht, along with the worst flooding and landslides in decades, may put a drag on 2017 investment and growth.

The outlook and risks for Central America and Mexico are being influenced by their exposure to the United States through trade, migration, and foreign direct investment. Mexico’s real GDP growth is expected to decelerate to 1.7 percent in 2017. Uncertainty about future trade relations with the United States and higher borrowing costs are expected to more than offset the positive effect from stronger U.S. growth.

Growth in Central America, Panama, and the Dominican Republic is expected to remain broadly unchanged from last year in 2017. Strong U.S. growth will help support exports and remittances.

Prospects for the Caribbean region are improving, with growth in both tourism-dependent economies and commodity exporters projected to be in the 1.5-3 percent range for 2017 and 2018.

FMI. PORTAL G1. REUTERS. 19/05/2017. FMI vai monitorar cena política no Brasil para decidir se muda previsões. Órgão estima que neste ano o Brasil sairá da recessão ao crescer 0,2%.
Por Reuters

O Fundo Monetário Internacional (FMI) acompanhará a turbulência política em curso no Brasil para decidir se vai mudar suas perspectivas para a maior economia da América Latina, disse nesta sexta-feira o chefe do Departamento de Hemisfério Ocidental do FMI, Alejandro Werner.
Leia mais: FMI eleva previsão de crescimento do PIB do Brasil em 2018
O órgão estima que neste ano o Brasil sairá da recessão ao crescer 0,2%, e que em 2018, a economia do país terá um desempenho ainda melhor, com elevação de 1,7%, ante previsão de 1,5% em janeiro.
O Supremo Tribunal Federal (STF) autorizou abertura de inquérito contra o presidente Michel Temer em consequência da denúncia de que Temer teria dado aval ao empresário Joesley Batista para manter pagamentos ao ex-deputado Eduardo Cunha em troca de silêncio sobre denúncias contra o governo.
Na conversa gravada, Joesley confessou ter pago propina a um procurador da República para ter acesso antecipado a investigações que o envolvia, reclamou de nomeações para cargos importantes no governo, defendeu queda mais acentuada da Selic e disse que "zerou" as pendências com o ex-deputado Eduardo Cunha.

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LGCJ.: